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Home / Market / Mark-to-market /  Hit by sluggish railway orders, Titagarh Wagons looks to diversify revenues

The employee unrest at Titagarh Wagons Ltd’s unit near Kolkata will deepen the company’s resolve to diversify its revenue stream. Following a strike, the company suspended work at the wagon plant on Saturday. If the plant closure is temporary, it will have a limited impact on Titagarh Wagons’ finances, as it can prioritize customer deliveries and shift production to other plants. The more important point is that while the wagon manufacturing business is core to its functioning, it is slowly losing importance in the company’s overall scheme of things.

The business is not doing well. The dire financial condition of Indian Railways, the company’s largest customer, has resulted in orders getting squeezed. In the last fiscal year, Titagarh Wagons manufactured just 686 wagons, 72% fewer than in the previous year. Due to sluggish economic activity, demand from the private sector also dried up.

After an inordinate delay, Indian Railways released wagon orders in April this year. But the quantum is not only small, the orders also carry lower margins. The situation can improve only if the railways steps up capital investments. Slow progress of the financial clean-up, however, means procurements (or orders for Titagarh Wagons) may remain muted for some more time. There is talk of dedicated freight corridors and opening up Indian Railways to foreign investments. But with these events also taking time to translate into orders, the company is giving business diversification a strong push.

It is entering the shipbuilding business, taking up defence orders and is even planning to sell tractors in the next fiscal year. This is besides diversification into related areas of competencies like castings, Bailey bridges, cars on rail wagons and refurbishment of Metro coaches.

“Participation in shipbuilding activities by undertaking fabrication of certain parts of small-to-medium vessels is being contemplated and in order to facilitate new business to be taken up, alteration of the Objects Clause in Memorandum of Association subject to compliance with the applicable laws is being placed for your approval by postal ballot," J.P. Chowdhary, executive chairman of Titagarh Wagons, said in the 2013-14 annual report released to shareholders last month. The company is scheduled to hold its annual general meeting on 11 September.

The diversification is expected to infuse new life into the company, bogged down by sluggish orders from Indian Railways. Titagarh Wagons is already executing some defence orders and is pre-qualified for several of them, Umesh Chowdhary, vice- chairman and managing director of Titagarh Wagons, told NDTV Profit. The current defence orders, estimated at 70 crore, may look insignificant when compared with the overall order book of 500-600 crore. But the steady rise of non-wagon revenues will help de-risk Titagarh Wagons and make it less reliant on the vagaries of the cash-strapped Indian Railways.

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